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The best and worst performing unit trusts of 2019

There’s a difference of more than 90% between them.
Resource funds were bouyed by the rise in the stock prices of a number of local miners, with Impala Platinum surging nearly 300%. Image: Supplied

Despite the negative sentiment held by many South African investors last year, 2019 was actually a good time to be in the markets. Of the 1 147 locally registered unit trusts available to retail investors, only 41 did not deliver a positive return. That is just 3.6%.

Taking a rough idea of inflation into account (given that we don’t have official figures yet), only 148 unit trusts failed to achieve a return of greater than 4.5%. This means that 87.1% of funds produced a real return for investors.

The median fund was up 9.2% for the year, and the average fund return was 9.9%. This is around 5% ahead of inflation, which is a healthy outcome.

Mining in the money

The standout performers were commodity funds, with four of the top five unit trusts for the year focused on mining stocks. International equities also delivered exceptional returns for local investors.

Top performing unit trusts of 2019
Fund Return
Old Mutual Gold Fund R 68.84%
Investec Commodity Fund R 58.32%
SIM Resources Fund 47.72%
1nvest S&P500 Info Tech Index Feeder Fund A 43.80%
Nedgroup Investments Mining & Resources Fund R 40.74%
IP Global Momentum Equity Fund A 39.25%
Sygnia FAANG Plus Equity Fund B 35.59%
Coronation Resources Fund P 35.40%
Coronation Global Equity Select Feeder Fund A 33.90%
Investec Value Fund R 33.43%
Coronation Global Emerging Markets Flexible Fund [ZAR] A 31.34%
Stanlib Global Equity Feeder Fund A 30.42%
Old Mutual Mining & Resources Fund R 30.26%
PSG Wealth Global Creator Feeder Fund D 29.32%
Sygnia 4th Industrial Revolution Global Equity Fund A 27.28%
MSCI World Index 27.67%
FTSE/JSE All Share Index 12.05%
Fund average 9.93%

Source: Morningstar

Resource funds were clearly buoyed by the rise in the stock prices of a number of local miners. These included Gold Fields, which was up over 90% for the year, Harmony, which gained just under 100%, and Impala Platinum, which surged nearly 300%.

It is therefore not surprising that six of the seven actively managed South African resources unit trusts make it onto this list. It is, however, noteworthy that all six outperformed the FTSE/JSE Resource 10 index.

The cyclical nature of commodities does from time to time produce this kind of massive outperformance from mining stocks, but history suggests that this does not continue. In fact, it is often followed by long periods of underperformance.

The only general equity fund in the top 15 performers is the Investec Value Fund, which has also been heavily exposed to commodities for some time. The makeup of the portfolio has, however, begun to shift in recent months, indicating that the fund manager is no longer seeing the same opportunity in this part of the market.

Tech continues to shine

A second significant group on this list is made up of those funds focused on the US technology stocks. These are the two Sygnia funds and the 1nvest S&P 500 Info Tech Index Feeder Fund.

These portfolios are heavily exposed to the likes of Alphabet, Apple and Facebook, which have been exceptional performers on the New York Stock Exchange.

Apple gained over 85% last year, while Facebook was up more than 55%, and Alphabet climbed close to 30%.

These tech stocks have been leading the US, and even global, market for some time and there have been questions for many years around how long they can continue to deliver this kind of growth. Many investors believe their dominance is unprecedented and will therefore continue. Value investors, on the other hand, are certain that there must be a mean reversion at some point.

Property funds and small caps struggle

At the other end of the scale, the worst-performing unit trust in South Africa lost 22.3% over the year. This means the gap between the highest and lowest fund returns in 2019 was 91.1%. That is an extremely wide dispersion.

Worst performing unit trusts of 2019
Fund Return
Nedgroup Investments Property Fund A -22.26%
Plexus Wealth BCI Flexible Property Income Fund A -11.68%
Cannon Mid and Small Cap H4 Fund A1 -10.12%
Flagship IP Flexible Value Fund A1 -10.03%
Alpha Prime Small & Mid Cap Fund A -7.70%
Ampersand SCI Flexible Property Income Fund A -7.20%
Allan Gray – Orbis Global Optimal FoF -6.98%
PSG Equity Fund A -6.85%
Bridge Managed Growth Fund A -5.94%
Mazi Asset Management Prime Property Fund A1 -5.11%
Momentum Small/Mid-Cap Fund A -4.94%
Nedgroup Inv Entrepreneur Fund R -4.83%
Bridge Stable Growth Fund A -3.86%
Mosaic Flexible Prescient Fund A1 -3.71%
Prime Worldwide Equity Fund A -3.61%
MSCI World Index 27.67%
FTSE/JSE All Share Index 12.05%
Fund average 9.93%

Source: Morningstar

Four property funds appear on this list as the listed real estate sector continued to struggle last year. The FTSE/JSE SA Listed Property Index did, however, return 1.9% in 2019, so the performance of the Nedgroup Investments Property Fund, in particular, is substantially below the benchmark.

There are also four small-cap funds in this group, plus the Mosaic Flexible Prescient Fund, which is predominantly invested in local small-cap stocks despite being a flexible portfolio. The FTSE/JSE Small Cap Index was down 4.1% in 2019, so these managers continued to struggle to extract returns from this part of the market.

It is odd to see a worldwide equity fund in this list when the MSCI World Index was up more than 27% in rand terms last year. The Prime Worldwide Equity Fund is, however, more than 75% invested in South African equities, and the portfolio has lost nearly 18% since its inception in February 2017.

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In the best performing we see the word “Global” quite often.

Yet your ANC government thinks regulation 28 protects you from risk by forcing your fund to invest mostly locally.

Reading Mike Shussler’s tweet regarding the decoupling of SA from emerging markets makes the whole thing even more scary.

The ANC cant run soe’s the country or the Koppies sewage works properly so why is it a good idea to have them tell your fund where to invest your pension money? Surely this is unconstitutional?

Reg 28 has got little to do with the ANC government, it was local asset asset managers colluding with ASISA that pushed this filth. In fact you can say treasury consulted with industry and followed their recommendations. They did what was reasonable, there were probably kickbacks sure but that is hearsay.

My reg 28 Portfolio:

Offshore:

Sygnia 4th industrial ETF 10%
Sygnia S&P500 ETF 10%
Sygnia MSCI World ETF 10%

Local:
Satrix RAFI ETF 20%
Sygnia SWIX ETF 20%

Balance:
BCI Income Plus 30%

This gave me a healthy 14.3% return for the year, thinking about re-weighting it a bit but if it isn’t broken, why fix it?

Your thoughts are welcome 🙂

I like it except one has to ask what your position could have been without a Reg 28 restriction and you had the 40% local also invested pro rata in your 3 offshore etf’s. Maybe you could have been closer to 20%?

Not saying this will continue forever but it is clear that the REG 28 has not done anyone any favours and the aim of government to reduce exposure to unnecessary risk by forcing a large portion of investment to be done locally is a farce and has the complete opposite effect. What about freedom of choice?

Exposure in the local etf’s is via a few shares not sure maybe 20 or 30? Your 3 foreign etf’s has exposure via hundreds of shares. Talk about being protected from risk.

I dont make the rules, just need to abide by them but if you want the tax benefits there is no way around reg 28.

However i did manage to beat 90% of all the managed balanced funds out there over the year, saving me a bunch in fees.

Just goes to show, with a bit of research you can quite easily do it

You’re doing this through a pension fund?

Why not go solo and chuck Reg 28?

A Flexible RA, Once again, I run separate Discretionary investments through the same platform but dont have full year views on that as its been going for 7 months.

The Tax benefits on an RA are worth dealing with the Reg 28 S*** in my opinion though as long as you can cut fees and get the Asset allocation right.

TheSpark, the tax benefit is really hard to beat if you add it and the fund growth. The more so the higher your tax bracket is.

Say you put R1500 into a retirement type fund, and you get R500 (30% tax rate) of that back from SARS (which you can spend or invest elsewhere or in a retirement fund again), you are R500 up already on the guy who invested R1500 in a discretionary product without the tax benefit.

Well done. Which platform do you use?

Sygnia, Mostly because they have a lower admin Fee when using their ETFs, and 50% of my portfolio is in their ETFs.

Satrix much lower

What does Satrix charge?

BCI Income Plus 30 %…mmm ?…are you sure

Yes… I am pretty sure that i have 30% of my RA invested in BCI Income Plus…?

Who knew at the start of 2019 which would be the best performing unit trusts?

Nobody.

Who would have known to invest in these to get the best returns?

According to Lars Kroijer by having 70% local & 30% offshore, we are in fact saying that our South African market is undervalued and the offshore markets are overvalued. While reg28 offer great tax benefit, it is actually more riskier. I’m convinced that a less riskier option would be a potfolio that invest in all markets in proportion to their weighting in the world equity markets.

Easy calculation. If you are on the 45% marginal rate, take the tax saving and reinvest in a discretionary investment, and even if you put it in to the money market, your total portfolio would return in excess of 50%.

for an normal equity fund PSG must have made some bad mistakes in a year where the market was positive…..Tongaat..Kap..?

Yip, and Discovery and 2% TER. PSG’s SA equity fund was down 17% last year (PSG Equity Fund A was helped by its non-SA allocation). With Discovery and Old Mutt still their biggest exposures, with the accounting challenges in these two, and with the long term pain to come for life insurers, PSG clients might be heading for a third bad year (but PSG will still earn 2%)

Interesting to note that lingbtime underperformed are still quite active and position themselves as expert investors. Cannon asset managers run by adrian saville and alpha prime by keith mchlachlcan are stand out perennial underperformed

End of comments.

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